An investment bank is a financial institution that has a license of bank and specializes exclusively on investment services. In the USA investment banking services was separated from other banking activity until 1999 because of higher risk. This is the reason why the country has so many strong investment banks that work only in this field of activity.
In other countries where was no such strong separation is more popular for investment banks to provide more investment services as brokerage, standard services of commercial banks like loans and deposits.
A big full scale current investment bank groups provides services in several fields:
- Corporate finance (traditional investment banking) branch of the investment bank can be very large and important for the whole bank. Clients of corporate finance branch are exceptionally companies (or owners), that seek to raise capital, make acquisition, sell business, restructure company or other. Corporate finance branch works on such projects like going public through an IPO, secondary stock issues, bond issues, mergers & acquisitions, structured finance and other.
- Investment management is also very important and profitable activity for an investment banks. Investment management includes management of private investment portfolios for main clients, management of mutual and pension funds as hedge funds as well. Investment banks may provide wealth management services too.
- Securities’ trading is a traditional activity of investment banks and brokerage companies. Investment bank may trade on his own account or be a financial intermediary between stock exchange and client. Maybe trading in securities for clients isn’t most profitable field of the investment banks, but a security trading usually is made on low pricing just to attract customers. The attracted customers bring profit in other services that go together with trading: margin trading, repo and short contracts, management services and other.
- Researches and advisory can be attributed to other fields or to be mentioned separately. Every large to investment services related company covers some markets and prepares an investment reports that are sold or provided for selected or all clients for free.
Few largest investment banks: